IRS PROBES CURRENCY EXCHANGES

John O`BrienCHICAGO TRIBUNE

Internal Revenue Service agents Saturday were notifying at least 25 owners of currency exchanges across the country, including the owners of nearly a dozen exchanges in the Chicago area, that they are under criminal investigation for allegedly laundering drug money.

The notifications followed a nearly two-year investigation in which a federal agent posed as a money broker for drug dealers, traveling to a dozen cities to launder up to $3 million by passing the money through currency exchanges and check-cashing stores, many of which are accused of not reporting the transactions to the government.

Details of the unprecedented investigation by the IRS were confirmed late Saturday by at least two sources familiar with the case. At the same time, it was learned that a federal grand jury in Chicago will begin hearing witnesses later this month.

Conservative estimates in the case say that at least 25 people could be charged in the alleged fraud. The currency exchanges and other check-cashing businesses allegedly accepted sums that exceeded the $10,000 government reporting limit and then ''restructured'' the money to reflect transactions of less than $10,000.

According to the sources, the IRS agent, who posed as a middleman for drug cartels, would carry more than $10,000 in cash. That money would be split up into several money orders, each under the $10,000 limit. Such restructuring violates federal laws.

Nationwide, as many as 40 currency exchanges could be confiscated by the government for the violations, according to conservative estimates. In Chicago, the figure was estimated to be from 10 to 12 exchanges.

According to the sources, the exchanges profited from the transactions both from fees paid for the money orders and because the cash influx helped keep their borrowing expenses low. Normally the exchanges borrow funds from banks to cash checks, but pay high interest on the money. The drug cash allegedly allowed the exchanges pay off the loans quickly.

In an effort to throw off investigators, currency clerks routinely issued money orders out of their numbered sequence, the sources said. That would keep a number of large sums from appearing in order on reports.

But patterns arising from the mixing practice were discovered in routine random surveys by the civil division of the IRS, which then transferred the investigation to the criminal division.